The Australian Taxation Office (ATO) has announced new updates on how one can claim expenses for working from home. From 1 July 2022 onwards, you can choose either to use the ‘actual cost’ method or a new ‘fixed rate’ method (67 cents per hour) based on what best matches your scenario. No matter what method you choose, you have to collect and maintain certain records to access the claim.
The first issue for claiming expenses is that there needs to be a link between the expenses you incurred and the method you make money. If an incurred expense doesn’t match your work or only half relates to your work, you won’t be able to claim the full expense as a deduction. On the other hand, the second issue is that you have to incur expenses related to working from home. For instance, if you are living with your parents and not having any expenses to run the home, you are not allowed to claim deductions for working from home because you haven’t incurred the costs, even though you are paying the board.
The New ‘Fixed Rate’ Method
Previously, there were two fixed-rate methods for the 2021-22 income year:
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A cover-all 80 cents per hour rate for costs incurred when you work from home (it was valid from 1 March 2020). This Covid-19-related rate was likely to cover all additional overhead costs linked to working from home, or
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If you had space for work but you were not running your business from home, you could access 52 cents per hour while you worked from home to cover the running expenses of your home. However, this rate doesn’t cover certain items, including depreciation of electronic devices that can be claimed separately.
From the 2022-23 financial year onwards, the Australian Taxation Office has merged these two fixed-rate methods to come up with one revised method that can be accessed by anyone working from home, irrespective of whether they are working at the kitchen table or have a dedicated space.
67 cents per hour is the newly announced rate and it covers your energy expenses (gas and electricity), phone usage (home and mobile), stationery, internet, and computer consumables. You are allowed to separately claim deductions of the expense of the decline in assets’ value such as computers, maintenance, and repairs for these assets, and on the other hand, if you have a dedicated home office, it will include the cost of cleaning the office. If more than one person is working from the same home, each person can claim using the fixed rate method if they meet eligibility criteria.
What proof does the ATO need that you are working from home?
To use the fixed rate method, you need to have a record of how many hours you worked from home. The ATO will not accept any estimates or a sample diary over 4 weeks. The ATO will allow taxpayers to maintain a record that will show the total number of hours worked from home during the time period from 1 July 2022 to 28 February 2023.
Furthermore, you also need to maintain a copy of at least one document for every expense you incurred during the year that is covered by the fixed rate method. It could include bills, invoices, or credit card statements. Each household member who contributes to the payment of an expense that is listed on a bill in the name of one person but the cost is split will be considered to have incurred it. You need to maintain these records so you can prove your claim. If you don’t have this proof at that time, you will not be able to claim deductions.
Conclusion
According to the ATO, you will no longer be able to give estimates or a sample diary over four weeks to claim work-from-home deductions. From 1 March 2023, you will have to show the actual hours you worked from home. For more information, you can reach Reliable Melbourne Accountants.